Upon joining world trade organisation (WTO), China became the EU’s largest trading partner in goods and fourth trading partner in terms of services.

Although frustration in the bilateral trade relationship emanates from both sides, China may end up being the biggest loser should the trade relationship become sour. For instance, China is inclined to the perception that Europe does not appreciate trading relationships that are of mutual benefit to both parties (Razeen, 2007, p.57).

However, there is a need to recognise the impact of external influences to a country’s policies like those of China that has been frustrated by recurrent calls made by Europe for China to put in place trading protective measures. This condition calls for the need to put in place

This argument is evidenced by the fact that, in spite of the impressive rise of 82 percent in European imports from China from 2002 to 2006 (Gill & Murphy, 2008, p. 13), exports to China have not risen significantly within the same period (European Commission, 2006, p.13).

For EU, the most difficult challenges in fostering bilateral trade relationships with China arises because Europe encounters the most substantive market accessibility problems in regions where the Europe products and services are competitive in China.

In overall, 8 percent of Chinese FDI is accounted for by Europe (Hufbauer et al., 2006, p.23). The EU has the perception that this figure is far below its potential.

Topic of the proposed research

Bearing in mind the bilateral trade difficulties and frustrations from both EU and China as set out in the section on the discussion of the title of the proposed research, the topic of this dissertation is put as ‘Sustainability of Bilateral Trade Relationships between EU and China.’

Objectives and aims of the proposed research

The main aim of this research is to examine the bilateral trade relationships between China and EU through a discussion of the various challenges that had been encountered since when EU and China stated to collaborate in various economic relationships.

This attempt helps to unveil various policies that may exist for both China and EU to enhance economic growth of each other.

Therefore, the proposed research will be instrumental in establishing the policies that may enhance more harmonious integration of China and EU in trading relationships in a manner that will ensure that the persisting frictions and frustrations are eliminated.

To achieve the above mission, the proposed research has the following objectives:

To establish the challenges and the problems faced by the bilateral trade agreements between China and EU.

To introspect the various agreements arrived by both China and EU during convections held to resolve the bilateral trade relationship stalemates.

To determine the party that fails to honour the agreements, to what extent it does it, and or how the reasons for dishonouring the agreements can be resolved to foster harmonious bilateral trade between EU and China through enactment of appropriate public policies binding the two.

A part from having a large consumption market, China has also emerged in the recent past as a major producer of various products and services that have reached a global market.

Indeed, due to production cost competitiveness, many firms in the US and Europe have resorted to contract manufacturing by outsourcing manufacturing tenders to companies located in China and other Asian based manufacturing firms (Bilzi et al., 2011, p.4).

In this extent, the proposed research is noteworthy since it gives a proposal for policies of resolving trade conflicts between EU and China. This attempt is pivotal in helping to contract firms located in China to have confidence in the trade relationships between EU and their home nation.

This means that a contract manufacturing company located in China will have no fear of breach of contract. Breach of contracts has the implications of making the aggrieved party go through the tedious process of seeking legal litigations.

Another importance of the proposed research is that it will help to unveil motivators of the dialogue between the EU and China.

These motivations are essential in the sense that trade relations between the two are fuelled and bound by them. Without a certain positive anticipated benefit for engagement in trading treaties, it is unnecessary for a nation to engage in any trading relationship of whatsoever kind (Messerlin & Razeen, 2007, p.225).

Additionally, proposals of mechanisms to resolve various areas of conflicts in the trade relationships between EU and China need to be done based on the policies for them to produce long terms impacts on resolution of various issues that attract frictions and frustrations from both ends of the trade relationships.

The liberalisation of trade and its consequent repercussions will demand an analysis to be conducted with a particular focus on China coupled with Europe’s public policies. The claim holds because the two form large pools of consumption markets besides massive producers.

This effort is perhaps well exemplified by the launch of the European Union’s and China’s PCA negotiations (DG Trade, 2007, p.13), which reflect a hefty intention of the two trade parties to deepen and or broaden their trade relationships.

However, despite the fact that heavy investment in bilateral trade relationships between China and EU create myriads of opportunities, the relationship has also created some dominant challenges.

How sustainable then is the EU-China trade relationship? Evaluation of the sustainability of the trade relationships with China is vital since it helps to explain the likely direction to be assumed by the trading dealings between EU and China.

Without evaluation of the sustainability of the trade relations between the two, it is impossible to establish policies of enhancing harmonious bilateral trade relationships given the economic capabilities of both European Union and China.

When this economic capability is well harnessed, it is possible for both the nations forming the European Union and China to attain high levels of economic growth.

Summary and outline of the proposed research topic

In 1975, People’s Republic of China established relations with European Union. Both parties agreed on the banning EU arms in China (Razeen, 2007, p.33).

These relations were principally governed by the agreement that was later signed by EU and China, which are referred to as ‘EU- China trade and collaboration covenant.’ Arguably, this was a crucial twist since, soon after the cold war, China never focused on trade relations with Europe in the same threshold as it did with the US and Asian powers like Japan (Ikenson, 2007, p.228).

Nevertheless, as economic interest coupled with multi-polar interests begun to rise, China became interested in enhancing trade relationships with EU.

Due to politically instigated problems, challenges arose between the EU and China. This situation made China view EU as being too weak due to the US involvement in pressuring trade restriction of EU such as arms embargo to remain in force.

There were also protectionist measures put in place to ensure that exports of China to Europe were controlled. Additionally, EU objected the according of a market economy market status to China for it to be eligible in WTO.

The above challenges make it clear that China approached its trade cooperation with the EU in a multifaceted dimension. This argument prompts the necessity for a scholarly inquiry into the direction assumed by China and EU trade relationships thus forming the main goal of the proposed research.

Description of Chapters in the Proposed Research

The proposed research will comprise four main chapters. Chapter 1 will encompass the introduction, which combines the purpose of study, research methods, research questions, objectives and aims, and discussion of an overall composition of the research.

In chapter 2, effort will be made to scrutinise theory of regional trade integration especially trade integrations from the perspectives of export and import treaties coupled with the implications of the treaties to parties forming the bilateral trade relationships.

The third chapter will be dedicated to applications of the developed theory to EU and China trade relationships. Here, the departure of alignment of the EU-China trade relationship from the theoretical constructs will be analysed, and possible solutions to the stalemates indentified.

Lastly, the forth chapter covers the conclusions. The key findings and recommendations are presented also in this last chapter.

Literature review

The immensely growing economy of China attracts the focus of the European leaders. Consequently, in the recent past, the leaders have solicited for easing the isolation of China from forming trade treaties with EU.

The repercussion for this was making China a favourable destination of visitors of European ancestry. Businesspersons and women from China also make trips to EU nations frequently. This interaction culminated into high trade exchange levels between China and Europe in 1990’s.

For bilateral trade relationships to thrive, it is crucial to have a balance of imports and exports to and from the parties engaged in the trade relationship. Unfortunately, this seems not the case for China and EU.

This argument is significant by considering the argument, “Europe’s trade deficit with China has increased rapidly in the last years rising from roughly 50 billion EUR in 2001 to around 170 billion EUR in 2006, which is more than threefold increase” (Dreyer & Erixon, 2008, p.2).

This trade deficit creates tensions over the economic integration of the bilateral trade between EU and China especially by noting that the main trading partner of China is Europe.

Methods review

To answer specific research questions calls for the deployment of appropriate research methods to garner data and analyse a problem. Any successful research is conducted in the context of established sets of policies or approaches that are acceptable within a specific discipline (Kothari, 2000, p.103).

Such policies need to satisfy techniques, methods, and procedures for testing reliability and validity in the attempt to realise results that are both objective and unbiased (Kothari, 2000, p.107).

Philosophies apply qualitative, quantitative, and or any other approach for research that is acceptable and or proved as being valid for a specific academic discipline.

The choice of research methodology depends on the type of research being undertaken. Types of research include descriptive, correlation, exploratory, and explanatory (Kothari, 2000, p.104).

This research is descriptive in nature. Therefore, the chosen research methodology should help in systematic description of a situation, phenomenon, programme, and problem.

It also needs to help in providing information on how challenges articulated with these aspects can be resolved.In this research paper, case study is chosen as the main method for conducting a descriptive research.

Apart for the methodological drawback in the methodology applied to develop the GATT rules or policies, they are problematic to apply in practice since it is difficult, if possible, to come up with a means of measuring the heights of resorting trade barriers following the creation of a regional trade policy (Devuyst, 2002, p.17).

Due to the above challenge in measuring the height of trade barriers, several empirical research scholars such as Abrenica (2007) have turned into measuring the impacts of regional integration from the contexts of trade volumes as opposed to trade barriers (p.13).

The methodology applied is empirical that is based on the actual recorded volumes of sales in the form of exports. The justification for this approach is that measuring effects of regional integration based on trade volumes is not only a simple and direct approach though it is also deeply justified in the economic theory (Winters, 2002, p.105).

The relevance of evaluating the impacts of regional trade agreement based on trade volumes is essential in the analysis of the EU-China trade relationships because different nations engage in imports and exports to balance deficits and surpluses of products and services within their territories.

Importation and exportation are normally conducted following certain trade policies in the quest to protect the intellectual property of the original creators of the products coupled with a need to protect the manufacturing and agricultural sectors among others that act as revenue generators.

Unfortunately, trade measuring the degree of trading relationships and trade integration empirically based on trade volumes does not give an insight of how future trading relationships would twist.

China continues to realise impressive growth rates. Geest and Razeen (2006) measured the economic growth rates of China following the formation of the trade policies between China and EU. The methodology entailed the empirical determination of the impacts of the EU-China trading relationship on the Chinese GDP.

This empirical research reveals that economic imbalances exist between EU and China trading relationship (Geest & Razeen, 2006, p.69). These imbalances give rise to challenges in the bilateral relationship between China and EU since the establishment of the EU-China regional trade agreement.

Therefore, the Chinese products have been flocking more in the EU markets in relation to the EU products in the Chinese markets. According to this empirical research, even if Chinese economy is rapidly growing, it is still also dependent on exports to various nations in contrast to domestic consumption.

This situation forces China to experience some problems in the foreign markets since “over investment in products, which have no outlet in the domestic markets, has led to import surges and dumping of Chinese products in the overseas markets” (Geest & Razeen, 2006, p.69).

The repercussion for this case is the emergence of trade frictions between China and the bilateral partners. In yet another empirical research on the how the Chinese products do in the EU markets, Alavi (2007) found that this situation has been the case for the trade relationships between China and EU (p.21).

China is an emerging economy, which has shocked the whole world in terms of the pace of economic growth. In a study to determine the reception of China’s attempts to get into global markets, Ornelas (2006) finds out that China stands high chances of continuing to define the manner in which globalisation efforts unfold in the 21st century (p.201).

For this reason, the rapid growth of the Chinese economy has the implications of resulting to a global feel of trade relations and agreements made with China by different nations and or regional areas of world trade such as the European Union (EU) (Ornelas, 2006, p.201).

The methodology applied by Ornelas (2006) to arrive at the conclusion is based on the statistical analysis of Chinese exports versus import into the EU and other economic hubs such as the US.

In the context of the topic under study in this research paper, this methodology is problematic in the sense that it relies on the past data to arrive at deductions considered appropriate in forecasting future anticipated twist of EU-China trading relationships.

Unfortunately, as various frictions between China and other trading partners are resolved, it is likely that the past nature of EU-China relationships will take a differing twist.

Messerlin (2009) investigates the direction taken by the EU-China trading relationships (p.135). The main method he uses is to analyse the rulings of the cases where Chinese companies are often caught up in stalemates involving accusation of engagement in improper antidumping practices.

The author studies more than 40 cases put forth by EU targeting Chinese companies through the anti dumping accusations. Deployment of case studies is an incredible methodology since it helps to bring realities into the research. Therefore, the recommendations stemming from the research findings are also based on real life situations.

The results of the work Messerlin (2009) indicate that China felt that her companies were not treated fairly in the anti dumping investigation conducted by EU (p.135). This perception emanated from the involvement of Chinese companies in six anti dumping investigations in 2007.

In fact, among six investigations, which ended with provisional duties imposition in 2007, Chinese organisations appeared in four of them (Messerlin, 2009, p.137).

Surprisingly also, in the eight of such new investigations that truncated into advocating of penalties that were definite, Chinese companies took the lions’ share by being held responsible for five of the cases.

The findings of the above research are crucial in providing insights into the difficulties that can be established in the trading relationships between nations engaged in trading treaties. However, there are substantial weaknesses of the findings in helping to determine, which party was not accommodative.

They are pegged on the argument that does not provide information on whether the trade agreements between EU and China were to be conducted in the context of Chinese antidumping regulations, EU antidumping regulations, or under some agreed upon antidumping regulations developed as part of legal frameworks or policies governing the EU-China trade relationships.

As such, the implications of trading relationships between two regions or nations under various circumstances, say EU and China, remain unclear and hence questionable.

In the light of the established gap in literature based on the implications of bilateral and multilateral trading relationships, Scott and Bergstrand (2004) attempt to seal it by studying the effects of regional trade agreements.

They do so by conducting a qualitative research on a number of lessons learnt by different nations, which have engaged in regional trading relations where some members have perceived themselves as having the power to regulate trading relationships between two other parties in the multilateral trade relationships.

A good example of such cases considered by Scott and Bergstrand is that of EU and China in which the US came in hardy to pressure EU not to abolish arms embargo on China (2004, p.49). This exposition shows that the economic strength and political participation of a third party nation may enhance trade relations between two parties.

The results of Scott and Bergstrand’s study are significant in the process of developing an informed stand on the effect of regional trading relationships. The work evidences that regional trade policies means both trade discrimination and liberalisation.

Discriminatory trade liberalisation emerges as beneficial in case it ensures that resources are shifted from domestic suppliers who are inefficient to the producers who are more efficient operating within the region or when there is ‘trade creation’ (Scott & Bergstrand, 2004, p.51).

Creating commercial alliance is detrimental to harmonious trading relationships in the extent that it may lead to changing capital far away from peripheral suppliers who are effective to those who are ineffective within the trading zone. This case primarily occurs whenever there are trade diversions.

Scott and Bergstrand’s study is significant in helping to unveil the trading relationships between two nations that are engaged in regional trade agreement policies. However, the reliability of the findings of the study is still challengeable.

On one hand, the study is dependent on the qualitative research in drawing its inferences and deductions.

Thus, it suffers from challenges associated with qualitative researches such as the determination of the extent to which the researcher had over the influence of research results coupled with reliability and validly issues in the case (Kok et al., 2005, p.317) of linguistic data (Ranjit, 2005, p.34).

With the increased concerns and the need for global integration to promote the free flow of goods and services in the global villages, it sounds imperative to presume that no single nation can now exist as a single island.

For the sake of protecting the intellectual property of nations, it infers that nations have to establish public policies that call for regional trading relationships because, in the formulations of the relationships, legal frameworks are spelt out to guide the rights of use of another nation’s technological products (Klaus, 2005, p.118).

Scholars need to set forth various strategies for mitigation of frictions that hinder harmonious bilateral, multilateral, and regional trading relationships between nations. Surprisingly, Scott and Bergstrand’s study gives none of these. The proposed research intends to seal this gap.

Given the large production capacity of China and the size of consumption market for EU, Chaudhuri (2010) argues that China cannot hesitate to resolve various challenges that hinder her trade relationships with EU (p.12).

Chaudhuri’s argument stems from reflecting on various challenges that EU-China trade relationship has been undergoing since its inception.

The main methodology used by the Chaudhuri is the analysis of the implications of various convections that have been held by both the EU and China in the effort to resolve their trading relationship disputes.

In his work, Chaudhuri (2010) infers that, if China is to give up on trade negotiations in the EU-China summits, it implies that China has to resort to strengthening her economic and trade relationships with the US (p.12).

However, the quest to ensure that China does not put all her eggs in a single basket acts as subtle motivator for the nation to continue perusing through mechanisms for easing her trade relationship challenges with the EU (Chaudhuri, 2010, p.12).

The US is also likely to be a more threatening trading partner given its political and economic capability.

Many of the researches conducted in the topic of regional trade policies are based on the analysis of secondary data garnered through research of the agreements reached during regional trading partners’ summits on trading cooperation.

Critical analysis on the extent and possible frictions on the implementation of the cooperation policies is normally given incredible attention as discussed above.

The focus of the myriads of researches on EU-China trading relations as the case for studying trade relations is carefully selected because EU presents an example of trading partner, which has gone through incredible process of economic growth while China exemplifies a trading partner, which is growing economically.

This way, the challenges of conflicts of interest associated with perception of one party as having the ability to dominate and control the trading relationships in a regional trade agreement (RTA) comes out conspicuously.

Although reliability and validity issues may emanate from such kind of research design and research methodology, secondary data is the only justifiable method of collecting data for the researches given the characteristics of the researches themselves: they are based on case study.

Some research scholars contest that case studies are not appropriate for conducting such researches.

However, a case study is appropriate to ensure that meaningful characteristics and holistic events that are real in life are retained among them being international relations, life cycles of individuals, changes in neighbourhood, and managerial processes while not negating organisational processes (Yin, 2005, p.2).

Review of research findings

Theory on regional trade relationships is dated back to the early 1950’s when Johnston argued in 1954 that, in case nations do not engage in trade policies, they would endeavour to tax trade in the attempt to ensure that they have exploited the international market within their reach (Giovanni, 2007, p.35).

Due to these exploitations, equilibrium is established often truncating into a trade war between nations. International trade treaties act as tools for ensuring that such trade wars are mitigated.

This line of thinking was further developed by the work of Bagwell and Staiger (2000) that extended the frame works in a situation where government subjected to various political pressures (p.226).

They further found out that governments that are politically motivated also choose to participate in trade agreements to the extent that they are able to ensure that their trade eternities are corrected (Bagwell & Staiger, 2000, p.227).

This argument suggests that the quest to gain political capability do not essentially act as the source of motivation in engagement in the trade agreements particularly with politically powerful nations (Mitra, 2002, p.480: Ornelas, 2005, p.1501) such as those in the European Union.

This finding raises the query of the motivations for China to engage in trade relationships with the EU.

The work Hanso (2012) provides a response to the above questions through discussion of various motivators for EU-China trade relationships.

He argues that China has an interest in forming trade relationships with nations, which will have the ability to provide a solution to global problems including the repercussion of the global financial crunch that began in 2008-2009 (p.107).

Since China has the advantage of low costs of production, it sounds imperative to deduce that it is possible for China to take incredible advantage of this strength to capitalise on the European markets to place her goods and services through trade cooperation with EU.

Being a nation of low production costs justifies why China is considered as an ample solution to the financial crisis (Chaudhuri, 2010, p.11). Amid the frictions in trade relationships between China and EU, it is then arguable that EU would not feel at ease to lose China as a financial partner.

China presents a good trading partner to EU due to low production costs. This strategy makes many organisations operating in the EU to consider China as the preferred nation to contract some of their manufacturing operations.

Review of concepts and theories

By gaining almost equal economic competitive advantage, parties engaged in trading agreements often encounter some dominance problems. Jing (2008) reinforces this argument by providing an insight that economic cooperation makes it possible for both sides to work collectively to benefit materially though differences of value beliefs coupled with political regimes and calculation of relative gains in the cooperation establish challenges that are evidenced in the bilateral relations (p.33).

This challenge is more significant by noting that Europe has been struggling to deal with repercussions of global financial crisis. The implication of this case is that the bargaining power of EU in relative to that of China in the EU-China trading relationship is severely weakened.

Trade relationships between EU and China have been changing often prompting the convening of summits between the two trading partners to resolves various conflicts. This way, the EU is ready to welcome and learn the immense role that China is assuming in the global markets.

Consequently, EU needs to take proactive strategies to ensure that it is not disadvantaged in the trading treaty between the two. However, this does not mean that consideration for termination of EU-China trading relationship is an option.

The role played by China in the global markets makes several nations and regional trading partners to seek tradition cooperation with China. Therefore, it is not imperative for EU to lose the opportunity to seek trading integration with the emerging global economic giant.

Apparently, the theory on regional trade treaties implies that regional agreements will not cease to exist in the near future (Giovanni, 2007, p.105).

Indeed, almost half of the world trade takes place via regional trade agreement policies. These agreements could either be bilateral meaning that they are made between two nations, or multilateral (McMillan, 2004, p.34).

The realisation of the impacts that trade agreements have on boosting the sales volumes of a nation’s products truncate into signing of a myriad of regional trade agreements across the globe.

For example, following the global financial crunch, some 25 regional trade agreements were notified to WTO by October 2009 (Freund, 2010, p.123). This situation brought the total number of regional trade agreements to 300 by 2010 (Freund, 2010, p.123).

This query equally disturbs research scholars such as Freund and Ornelas who further worry whether regional trade treaties need to be celebrated for, or should worry the international community (2010, p.145).

The above scholarly questioning of the impacts of the regional treaties creates impressions that trade treaties or relationships between different nations of differing geographical regions may create problems or lead to economic endowment of both the parties coming into the trade relationships.

The agreement may also serve to create wealth for only one nation forming the trading agreement. This happens to be the main concern of the EU and China in the EU-china trade cooperation. In this line of view, the Dreyer and Erixon (2008) work argues that Europe imposes protectionist pressures to China (p.4).

The authors further claim that in the trading relationship between the two, Europe has always blamed China for failing to honour antidumping procedures applicable in Europe.

Regional integration treaties have welfare consequences coupled with distributional and transfer implications among the nations involved in the agreements. These effects influence the political stability of the nations subscribing to particular regional trade agreement.

Transfers take place between trade bloc members since removing tariffs implies that exports stands better chances of being highly priced in the market of the partnering nations (Alavi, 2007, p.14) and hence the condition of positive transfer.

Net tariffs on imports amplify negative transfers. Indeed, trade is an essential propeller of economic wealth of nations. Economically endowed nations also have more political powers and the ability to control trade between it and the partnering nations.

This advantage is reserved for the nation that exports more than it imports from the nation it has collaborated with in the RTA. This case is the concern that has characterised the trade relationships between China and EU particularly with the rising production capacity of China.

Research Design and Methods

The proposed research will rely heavily on the large scholarly body of knowledge that exists on the hindrances of regional trade agreements. To evaluate these impacts, the method adopted in the research paper will include the use of case studies, quantitative, and purely qualitative researches.

One of earliest qualitative studies into the discipline of regional integration agreements is postulated by GATT regional integration rules (Bagwell & Staiger, 2005, p.471). These rules suggest that trade barriers with the other nations of the world should not be escalated after the adoption of regional integration treaties.

This means that regional integration should not act to create impediments to the multilateral trading relationships between nations forming the regional trade treaties with other nations that are excluded from the treaty.

The deductions made from the GATT rules, which are based on qualitative research pose a methodological drawback in their capacity to reflect the actual manner in which trading relationship should operate to be harmonious among the states engaged in trading relationships because qualitative researches are inductive approaches of research methodologies applied in theory development (Kok et al., 2005, p.315).

They must therefore be tested through quantitative models (Podsakoff, 2004, p.13).

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